November 15, 2003
I recently read Clayton Christensen and Michael Raynor's new book, The Innovator's Solution. The authors draw a useful distinction between sustaining and disruptive innovations. Here's what they have to say on sustaining innovations:
A sustaining innovation targets demanding high-end customers with better performance than was previously available… The established competitors almost always win the battles of sustaining technology. Because this strategy entails making a better product that they can sell for higher profit margins to their best customers, the established competitors have powerful motivations to fight sustaining battles. And they have the resources to win.
So the distinction between a sustaining and a disruptive innovation is based not on whether the underlying technology is radical/disruptive or incremental, but rather on who the innovation targets. The corollary to this is that if your new business idea for a startup takes the form of a sustaining innovation in the target market space, you are unlikely to succeed in building a long-term standalone business – you will be out-competed by the market gorilla or (in the best case) acquired. When I was out raising money for my startup, I would often get asked the following “defensibility” question: “What’s to prevent Cisco/Motorola from doing this?”. Christensen’s analysis allows us to frame a refinement to this question: Is the technology that you’ve developed a sustaining or a disruptive innovation relative to the value network that your business is trying to enter?
Here's an example: SSL VPNs have recently emerged as an alternative/complement to traditional IPSec VPNs. The major advantage over traditional VPNs is that there's no need to install a software client - the SSL VPN uses http as transport. The big three in SSL VPNs are Aventail, Neoteris and SafeWeb. This is a good example of a sustaining innovation - technologically very different from the predecessor technology, but aimed squarely at the same set of customers that are targeted by the large entrenched VPN vendors (Cisco, Nortel, Checkpoint, NetScreen, etc.). It is an innovation that is sustaining relative to the products and business of the market leaders in the secure remote access space. Here's Christensen again:
(Click below to continue reading)
Starting a new company with a sustaining innovation isn’t necessarily a bad idea: Focused companies sometimes can develop new products more rapidly than larger firms because of the conflicts and distractions that broader scope often creates. The theory of disruption suggests, however, that once they have developed and established the viability of their superior product, entrepreneurs who have entered on a sustaining trajectory should turn around and sell out to one of the industry leaders behind them… A sustaining-technology strategy is not a viable way to build new-growth businesses, however. If you create and attempt to sell a better product into an established market to capture established competitors’ best customers, the competitors will be motivated to fight rather than flee.
This is indeed exactly what's happening. Look at this article on CNet a couple days ago: SSL networking heats up. Cisco just announced that they're adding SSL VPN as a feature to their 3000 series of VPN concentrators. This follows on similar recent announcements from Nokia and Nortel. This is what you would expect from the established competitors in the secure remote access space. Also comprehensible in this light are the recent acquisitions of Neoteris by NetScreen and SafeWeb by Symantec. That leaves Aventail. The article quotes an Aventail exec as saying that the market is large enough to support a company that specializes in providing secure sockets layer networking and that "The big players will eventually get it right. They might end up owning 60 percent of the market but pure-plays will own 20 (percent) to 30 percent of the market." Now, any guesses on whether Aventail gets acquired soon, co-opted or remains a standalone business?
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